InsureTech for Development

Ventures that promise to make insurance more fun with technology attract considerable attention and funding. In mature markets, that is. More than half of the $2.3 billion InsureTech funding in 2017 went to the US and the UK, where the average person spends more than $5,000 on insurance every year (that includes newborns). In a country like Bangladesh, by comparison, insurance premium per capita is $8, and this statistic fails to show that most people have no insurance at all, so that insurable events such as accidents end the progress out of poverty for too many. The obstacles that prevent these people from including insurance in their risk management toolkit are surprisingly similar to the obstacles that InsureTech wants to remove to better serve American Millennials. They include lack of trust in insurance companies and lack of understanding of insurance, but also the frustration caused by annoying processes (think filling long forms and waiting for mailed responses) and products that don’t fit.

Imagine an app that:
• Helps customers determine their insurance needs
• Helps them find the most suitable product from the most suitable provider
• Automatically transfers the necessary data, which resides in the app
• Uploads the insurance policy in a digital locker with the customer’s other policies
• Points out redundancies among the different insurance policies and suggests streamlining
• Allows to switch insurance cover on or off as needed
• Clarifies any doubts the customer may have about scope and conditions of cover in simple language at any time
• Reminds the customer of critical dates such as policy renewal and premium payment
• In case of claim, provides GPS information and pictures to the insurer and facilitates the real-time dialogue with the claims handling staff – or bots - of the insurer, which may include innovative fraud detection components that speed up claims payment; which of course is done through the payment channels administered by the app.

This allows convenient one-click buy of insurance and puts the customer in a position to meet insurance companies at eye level and make informed choices of purchase and use. It reduces the cost of making insurance available – even for small covers, short periods and irregular payments - and increases market transparency so that efficiency gains benefit consumers. It addresses the fundamental factors that exclude millions from insurance markets: understanding, affordability, convenience, suitability and trust.

An app like this embodies various dimensions pursued by InsureTech: cost reduction through digitization, alternative distribution channels, new (e.g. smartphone GPS) and “big” (e.g. social media) data, artificial intelligence (advice via chatbots, new and unstructured data for indicators of insurability and fraud), insurance on demand, and customer centricity. Startups explore many other areas of insurance innovation. But to prove their inclusive potential, these innovations must find their way to more emerging economies and developing markets, where the business potential is not as bright as in the US but the developmental potential much brighter. Innovators should consider how their propositions can help end poverty in low and middle-income countries, making insurance work where it currently does not. Stakeholders in these countries need to be prepared when disruptive innovation arrives to their insurance markets. The imaginary app shows how ownership and protection of personal data needs to be reassessed so that markets remain fair, safe and stable as they become more inclusive. Applying artificial intelligence to big data allows more precise segmentation of risks, but too much granularity can conflict with the law of large numbers. Switching “insurance on demand” on and off may reduce the cost for the consumer, but creates new opportunities for fraud. Finding the right middle ground (or even finding a mechanism – like regulatory sandboxes - to find that middle ground) requires dialogue informed by expertise. The World Bank Group contributes to make InsureTech inclusive in many ways, e.g. with investment in innovators, technical assistance to regulators, and strengthening of consumer protection.

Comments

Your described App is a great idea - but not inclusive. What about the millions of customers without a smartphone, or the purchasing power for mobile internet, in need of an insurance? And how would they learn about your App, why would they download it, would it work in their local language as well? We are working with IVR systems to bypass this problem, and the many limitations coming with USSD services. And if you are sure your target groups have smartphones and internet we would make you swap the App for a Social Media ChatBot running on the platforms all smartphone users have on their phones and know how to navigate. Again, the App is a good idea but make it inclusive!

While it is true that most low income households have no smartphones today, that is changing faster than we thought. An app like the one described will not change the way most poor people interact with insurance this year or next, and meanwhile solutions that work for feature phones like IVR deserve much wider success. What this app exemplifies is the potential for technology to enable new functionality which addresses obstacles to insurance demand - convenience, communication at eye level, minimum policy price – and supply – scarcity of data, cost of distribution and administration. If it allows the sachet principle to take root in insurance like the scratch card did for telephony, that in itself will be revolutionary. Innovators in insurance will certainly explore the potential of Social Media ChatBots, but questions like data ownership, client relationship, and interface functionality will need to be sorted out, and I can imagine a future where inclusive insurance is provided successfully by apps regardless of what Social Media ChatBots will be doing by then.

A key message of the blog and the corresponding report is that innovations that are being tested without much pro-poor intention today have the potential for inclusive impact tomorrow.